New York Natural Gas Ends Week on High Note

Natural gas in New York rose for the third time in four days as lower temperatures next week may boost demand for the heating fuel. Prices surged in the final 30 minutes of trading as heating oil, a competing fuel, jumped with the contract’s expiration.

Fuel use may increase as overnight temperatures in Chicago next week dip to 24 degrees, about 13 degrees below normal, AccuWeather.com of State College, Penn., predicted today. About 72 percent of homes in the Midwest rely on gas for heat.

“It’s hard for people to take a bearish attitude in a market where it’s half the price it was in July,” said Peter Beutel, president of energy consultant Cameron Hanover Inc. in New Canaan, Connecticut. “We’re coming into the peak demand season.”

Natural gas for December delivery rose 35.2 cents, or 5.5 percent, to settle at $6.783 per million British thermal units at 3:18 p.m. on the New York Mercantile Exchange. Prices reached their high for the year of $13.694 per million Btu on July 2. The futures dropped 8.8 percent this month and are down 19 percent from a year ago.

The expiration of the October heating oil and gasoline futures contracts at the close of floor trading today prompted buying in other energy markets, said John Kilduff, senior vice president of risk management at MF Global Inc. in New York.

“Ten cents is a pretty big move for expiring contracts; we saw similar with crude mid-month,” he said. “It’s got people short covering on all fronts. It has been so bearish that there was a bit of a scare put in the market and people cycled out of short positions.”

A speculative short is a bet that prices will decline. Crude oil, gasoline, natural gas and heating oil all began rising at about 2 p.m. New York time.

Below-normal temperatures are probable in the Chicago area starting Nov. 5, according to the Climate Prediction Center in Camp Springs, Md.

U.S. gas inventory gains in a government report next week may be limited to 30 billion to 40 billion cubic feet, said Martin King, an analyst at FirstEnergy Capital Corp. in Calgary. King said he had expected an increase of between 40 billion and 50 billion cubic feet before colder weather was predicted.

“Weather forecasts have shifted to be a little more bullish,” King said. “As far as I can tell from the pipeline data being posted, we could be looking at a fairly small build.”

The Energy Department said Thursday that U.S. inventories totaled 3.393 trillion cubic feet in the week ended Oct. 24, higher than the five-year average at the start of the cold- weather season.

Supplies typically rise until early November, when demand increases with colder weather.

“It’s a little dangerous to take a short position in here, given the illiquidity of the market,” said Tom Orr, research director at Weeden & Co. in Greenwich, Conn. “You could get a cold shot at any time and be back above $7.”

Hedge funds and other large speculators have sold positions as the financial crisis prompted investors to reduce their risk and move into cash holdings, said Orr.

“Everybody I talk to at the hedge funds says they’re all in cash,” Orr said. “Everyone is in a holding pattern. No one is trading.”